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Saudi regulations target stock market speculators

Saudi regulations target stock market speculators

May 15, 2013 6:03 by

A drive for tighter regulation of Saudi Arabia’s stock market may help to break the hold of short-term speculators on share prices, making the market more attractive to local and foreign institutional investors.

This week the Capital Market Authority, operating under a new chairman, announced a series of measures designed to reduce the volatility of shares, make them harder to manipulate and improve the quality of listed companies.

Authorities have tried in the past to lift the market’s tone, with limited success. Currently over 90 percent of daily trading on the Arab world’s biggest stock market, which has a capitalisation of about $400 billion, is conducted by retail investors rather than institutions, officials say.

Because such investors often chase short-term gains in low-priced shares that are easy to manipulate, prices can become very volatile and money is sucked away from blue-chip companies that deserve to be more highly valued. This hurts the market’s role as a stable source of funds for corporate investment.

The CMA’s initiatives this week suggest it is making its strongest effort in years to change that pattern, fund managers and analysts said.

“The new management of CMA has started their work to enhance the market overall – expect a few more changes,” said Mohammad Omran, an independent financial analyst in Riyadh. “These initiatives will try to organise the practices in the market and move it away from illegal and speculative trading.”

If successful, the reforms could make the Saudi market more welcoming to foreign as well as local institutional investors. At present foreigners can invest only via a small number of exchange-traded funds and swap arrangements; Riyadh has for several years been preparing to permit direct investment, though it has not set a date for implementation.

Stock market reform also has political implications. After the Arab Spring uprisings elsewhere in the region, the government is spending billions of dollars to ease social discontent by cutting unemployment and poverty. Stronger capital markets could stimulate the private sector and create jobs.


The move against speculation appears to have backing at the top of the government. King Abdullah appointed Mohammed bin Abdulmalik Al al-Sheikh, previously an executive director at the World Bank, as chairman of the CMA in February.

Al-Sheikh has worked at U.S. law firm Latham & Watkins in Riyadh; the firm said he had nearly two decades of experience representing sovereign wealth funds and government bodies in Saudi Arabia, and that his law practice focused on mergers and acquisitions, capital markets and project finance.

Last week Al-Sheikh told reporters that with other government bodies, the CMA was developing a strategy to promote institutional trading on the stock market, and was disappointed by the current “high levels of speculation” in shares.

“The CMA should put a limit on this manipulation to safeguard investors. We are currently trying to address this issue,” he said.

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